The range of returns seen from the fixed income managers, for example, starts at +9% for those with a more of a government bond mandate and fall to -6% for managers with higher income targets who have felt the need to move into bonds with lower credit ratings to increase yield.
Balanced portfolios also had a significant disparity of returns between managers. The worst performing lost 15% in the quarter while some of the better managers made modest positive gains.
As expected the worst drawdowns were seen from managers who run the more aggressive mandates. The larger loss in the quarter (-25%) was from a manager with high yield bond exposure and Far Eastern equity exposure.
This really was the quarter for investment managers who aim to preserve capital to demonstrate their worth. We have seen some excellent examples although others got the strategy wrong and suffered falls of up to 10%.
Positive for macro traders
Macro-trading managers now have an environment in which they should thrive. Returns of between 2% and 4% have been quite normal for the quarter and it will interesting to see how these managers perform going forward.
Richard Sayers, director of Enhance Investment Reporting , commented on how diverse the returns have been across all mandates, saying: “A good number of investment managers, faced with any number of financial headwinds had reduced risk in portfolios but few had significant sovereign debt exposure, the best performing asset class, preferring the valuations in the corporate debt sector. During the third quarter, global equities fell by over 15% while UK gilts gained more than 8%.”
He pointed out that meetings he had with charities and private clients since the end of September were far more encouraging, with several were now in positive territory after a very strong October.
Lee Quemard, director of Enhance Wealth Consultancy, highlighted the necessity to not only look at the performance numbers, especially in quarters like we have just experienced, but to also look at the risks taken at the portfolio level.
“Understanding the credit risk taken by investing in an individual bond issue, for instance, is extremely important especially if the manager decides to take a 5% or 10% stake in an individual holding,” he explained.
